Gold, copper equities to rise, metals flat: analysts

Stocks in certain gold and copper producers are expected to gain this year even as a surge in the metals’ prices subsides, BMO Capital Markets says.

Investors may seek attractive catalysts for higher performance by Barrick Gold (TSX: ABX; NYSE: GOLD), Kinross Gold (TSX: K; NYSE: KGC) and Agnico Eagle Mines (TSX: AEM; NYSE: AEM), BMO mining analyst Jackie Przybylowski wrote in a note on Friday.

“We’re now seeing increasing expectations for copper and gold commodity prices to remain relatively flat,” Przybylowski said after a tour of investors in the United States and Canada. “Investors are increasingly confident that gold miners are managing cost inflation well and will generate strong free cash flows at current strong gold prices.”

Investors are moving into gold equities from bullion, and the gold price may increase while central banks increase purchases as the United States election approaches, the analyst said. Stockholders favour gold over copper partially because copper has fallen 12% to $4.32 per lb. since $4.93 per lb. on May 20, according to Mining.com.

Equity financing

The BMO analysis ties in with a larger view of mining equity capital raisings on the TSX and TSXV, which rose to C$6 billion in May. Those included Hudbay Minerals’ (TSX: HBM; NYSE: HBM) C$551 million, Iamgold’s (TSX: IMG; NYSE: IAG) C$411 million and New Gold’s (TSX: NGD; NYSE: NGD) C$235 million. In April, the total was at C$4.6 billion.

The total market capitalization of the 2,682 mining companies listed worldwide increased 4.8% to $2.42 trillion in May, the highest since March 2022, from $2.31 trillion in April, according to S&P Global. Commodity price strength pushed the third consecutive month of increases, it said.

Gold financing rose for a fourth consecutive month in May to $701 million, up 93% from April, S&P said. Four of May’s biggest deals were for gold companies and projects. The total number of mining transactions fell to 230 from 237 in April. Ten deals were valued at more than $30 million each compared with six in April, it said.

Generalist funds are investing in Agnico Eagle, and in Kinross for its strong free cash flow leverage to current strong gold prices, BMO’s Przybylowski says. Kinross may benefit as the market recognizes quality in its assets and locations, she said.

Investors are split in their preferences for Barrick and Newmont (NYSE: NEM; TSX: NGT) and are sometimes pairing them in long/short trades, BMO said. They may waiting for the companies’ next financial reports for more information.

Gold

Gold ended the year’s second quarter at an average price of $2,338 per oz., the highest quarterly price average ever for gold, surpassing the first-quarter average of $2,074 an oz, according to Toronto-based Capitalight Research. The gold price could hit $2,800 per oz. this year though it may fall since the market has already factored in at least one US central bank interest rate cut, it said on Friday.

“It’s not clear that US debt problems, external geopolitical problems and tensions with China, for example, will dissipate any faster under a Trump presidency than under a Biden presidency,” Martin Murenbeeld and Chantelle Schieven wrote in a note. “US data released this week do not point to recession – rather, to a nice soft landing instead.”

Copper

In copper, investors are interested in M&A opportunities and how they can leverage holdings whether companies are buyers or targets, BMO’s Przybylowski said. Like in gold equities, investors are looking for company-specific action to guide them, she said

Lundin Mining’s (TSX: LUN) joint venture at the Josemaria project in Argentina is boosting market sentiment, while some investors expect First Quantum Minerals (TSX: FM) to restart its Cobre Panama mine by late this year or early 2025. Still, BMO sees First Quantum stock as relatively expensive on a risk/reward basis, the analyst said.

Overall, BMO says investors are more interested in growth and momentum stocks than value equities, ones that may be less expensive than they should be according to various measures.

“Investors remain cautiously supportive of growth and increased leverage to commodity prices, but continue to be concerned about major project cost overruns and changes to geopolitical risk profiles of various mining jurisdictions,” Przybylowski said. “Affordable capital returns can help to signal discipline and are appreciated as a balance or offset to growth.”